Who is buying the claims?
Buyers can range from broker-dealers and investment banks such as UBS and Barclays (which then may sell them to their own hedge fund customers) to claims-focused funds, such as Bowery Investment Management, LLC, which purchases claims directly from customers.
Claims are not securities and the market for them is not regulated, but many claims buyers are and this can give the seller background and transparency on a counterparty to the sale. Claims trading is still an emerging asset, albeit one tied to a highly structured and transparent bankruptcy industry. Transparent, at least, for those with the resources to follow a bankruptcy in detail.
SecondMarket reports that “MF Global Inc. was the second most actively traded claim in August, with $445 million transferred with more than 309 trades.” September saw an increase in trading of both 4d (U.S. segregated funds) and 37.0. (funds held in secured overseas accounts).
While at the time of this writing, 4d claims currently are being traded up to a mid-90% recovery, and 30.7 claims are trading in the 80s, “The ultimate recovery is difficult to predict,” says Vladimir Jelisavcic of Bowery “The biggest controversy,” he adds, “relates to the inter-company transfers from the U.S. brokerage to the UK brokerage affiliate.” The first hearing on this question will be held only in April 2013.
Claims trading is a market like any other, and as information becomes available prices offered can and will move up or down.